Tax Tease of the week - resident or non-resident?

There's a story in the Sunday Times today headed: Taxman targets exiles who keep UK toehold.

This qualifies for inclusion on the TaxBuzz blog as a 'Tax Tease' as there's nothing really newsworthy in the story. Tax advisers have been aware of a shift in the way HMRC treat claims to non-UK resident status for some time. It has become particularly difficult to be confident of a securing non-UK resident status if you continue to spend time in the UK since Robert Gains-Cooper first lost his claim to non-resident status in 2006. He has since lost his appeals to the High Court and to the Court of Appeal as I reported in a posting last year: Gaines-Cooper loses in Court of Appeal - Residence rules revisited.

HMRC meanwhile withdrew their guidance booklet IR20 which had previously been considered the 'bible' for advising clients as to what they needed to do to secure non-residence status. Revised guidance was published on 31 March 2009 in the shape of: HMRC6 - Residence, Domicile and the Remittance Basis.

HMRC's FAQs for Non-Residents continue to suggest that you can achieve non-UK resident status if you 'leave' the UK and spend a sufficient amount of time abroad. Indeed the day counts listed in FAQ 3 are the same as they have ever been. As indicated in HMRC 6 (section 8) the real emphasis is now on whether or not you can evidence that you have really 'left' the UK. And it's likely that plenty of amateur tax advisers are unaware of HMRC's views on the subject.

And it is examples of traps in this regard that the current Tax Tease addresses. Tax advisers with expertise in this area have long been cautious about allowing would be tax exile clients to think they have achieved non-UK residence until and unless their status has been examined by HMRC. As the top rate of income tax in the UK rises to 50% next year so it will be even more important to be sure of whether or not someone has retained their UK resident tax status.

Bottom line. Nothing has changed here for months. The so-called new 'high net worth unit' in HMRC is simply the 'Complex Personal Returns' teams after many less complex taxpayers have been removed. These teams were originally established in 2002.

If you previously understood that you could become non-UK resident simply by ensuring that you limit your visits here to less than 90 days a year - think again. Would be tax exiles will need to decide how far they are prepared to go to justify a claim to non-UK resident status, to chance a long-winded expensive HMRC challenge or whether they are prepared to remain resident here.

Having said all that, if you are preparing a tax return for the year ended 5 April 2009 and want to check whether you can legitimately claim non-UK resident status, do get in touch with one of our expert tax advisers.